The $33 Billion Secret

Services trade doesn’t get much political attention, for an understandable reason: it’s invisible. No one films a television segment about the arrival of services at Long Beach. There are no shipping containers stacked at the port labeled “financial consulting” or “intellectual property licensing.” But the money is real, and the trajectory has been extraordinary.

In 2003, the U.S. services surplus with China was $2 billion — a rounding error in a goods deficit that already exceeded $100 billion. By 2010, the surplus had reached $9 billion. By 2018, it peaked at $40 billion — a twentyfold increase in fifteen years. Then COVID hit. Chinese students couldn’t fly to American campuses. Tourism stopped. The surplus crashed to $17 billion in 2022 before recovering to $33 billion in 2024. It has not yet returned to its pre-COVID peak.

The services surplus matters not just as a dollar figure but as a window into what America actually does well in the bilateral relationship. In goods, China is the manufacturer and America is the customer. In services, the roles reverse. America is the provider — of education, of intellectual property, of financial expertise, of business consulting — and China is the buyer.

The largest single category in the services trade is travel, including education: $24.3 billion in 2024. The BEA counts spending by foreign nationals on U.S. soil — tuition, room, board, living expenses, tourism spending — as a services export. And no country sends more students to American universities than China.

In the 2023–24 academic year, approximately 277,000 Chinese students were enrolled at American colleges and universities, according to the Institute of International Education. They are overwhelmingly concentrated at elite and large public institutions. The University of Illinois at Urbana-Champaign enrolled more than 6,000 Chinese students. The University of Southern California, Columbia, NYU, and UCLA each had thousands more. Many are in high-tuition programs — engineering, computer science, business, data science — where international students pay full sticker price, often $50,000–$70,000 per year.

The math is striking. At 277,000 students paying an average of $50,000 in tuition and $20,000 in living expenses, Chinese students contribute roughly $19 billion per year to the American economy. Add family visits, tourist spending, and short-term business travelers, and the $24.3 billion total is accounted for. One product — an American university education — generates more export revenue from China than American soybean farmers, aircraft manufacturers, or semiconductor companies.

The asymmetry is remarkable. In the other direction, American travel spending in China was just $2.4 billion in 2024 — a tenth of the reverse flow. Before COVID, the ratio was even more extreme: $31.6 billion versus $3.7 billion in 2018, nearly 9:1. Far more Chinese people come to America than Americans go to China, and when they come, they stay longer and spend more. A four-year university degree generates more economic value than a two-week vacation.

Travel dominates, but the remaining $31 billion in services trade covers five additional categories, each revealing a different facet of American competitive advantage.

Intellectual property royalties ($7.8 billion in exports) — When a Chinese smartphone maker licenses Qualcomm’s wireless patents, that royalty payment appears in this line. When a Chinese pharmaceutical company pays to use an American drug formula, or a Chinese film studio pays for the rights to distribute a Marvel movie, or a Chinese factory pays to use American industrial software from Autodesk or PTC, those fees all flow through intellectual property exports. China pays America $7.8 billion in IP royalties and receives just $1.0 billion in the reverse direction — an 8:1 ratio that reflects the massive asymmetry in patent ownership and content creation between the two economies.

Business services ($5.1 billion in exports, $7.3 billion in imports) — This is the one services category where China actually runs a surplus. Business services include management consulting, engineering, research and development, and legal services. The Chinese surplus reflects the outsourcing of R&D and engineering work to Chinese firms and the growing competitiveness of Chinese technology companies in global markets. McKinsey’s Shanghai office generates revenue counted as an American export. But Chinese engineering firms performing design work for American clients generate even more in the other direction.

Transport ($5.0 billion in exports, $7.7 billion in imports) — China imports more transport services than it exports because of the volume asymmetry: far more containers cross the Pacific from China to America than the other way. Every container ship carrying iPhones from Shanghai to Los Angeles requires port services, customs brokerage, and freight forwarding. The transport deficit of $2.7 billion is essentially a tax on the goods trade deficit.

Financial services ($4.4 billion in exports, $1.3 billion in imports) — Wall Street earns fees from Chinese companies listing on American exchanges, Chinese investors buying American securities, and Chinese banks using American financial infrastructure. Goldman Sachs, JPMorgan, and Morgan Stanley all have substantial China operations. The $3.1 billion surplus reflects America’s enduring dominance in global finance.

Maintenance and repair ($3.3 billion) — Chinese airlines that fly Boeing aircraft need American-certified maintenance, often performed at facilities in the U.S. or by American contractors abroad. This category has been quietly growing as China’s airline fleet expands.

The services surplus’s dependence on physical travel made it uniquely vulnerable to COVID-19. When China closed its borders in early 2020 and the United States restricted incoming travel, the flow of students and tourists stopped almost overnight. Travel exports to China plunged from $31 billion in 2019 to $16 billion in 2020 and $11 billion in 2021. Chinese students already enrolled in American universities switched to online classes from their apartments, but new enrollments dropped sharply and spending on campus housing, meals, and local services evaporated.

The overall services surplus fell from $40 billion to $19 billion — a $21 billion decline driven almost entirely by the travel collapse. Non-travel services barely budged. IP royalties continued flowing. Financial services carried on. The vulnerability was concentrated in a single category, and that category required people physically crossing an ocean.

The recovery has been gradual. Chinese student enrollment bottomed in the 2021–22 academic year and has been climbing back, though it remains below its 2019 peak of approximately 370,000. Travel exports recovered to $24 billion in 2024, still $7 billion below the 2018 high of $31.6 billion. The overall surplus of $33 billion is $7 billion below its $40 billion pre-COVID peak. Full recovery, if it comes, depends on Chinese student enrollment returning to prior levels — a prospect complicated by political tensions, visa restrictions, and growing competition from UK, Australian, and Canadian universities.

The tempting conclusion is that services could, with enough growth, offset the goods deficit. The math says otherwise. In 2024, the services surplus was $33 billion. The goods deficit was $295 billion. Services offset 11% of the goods gap. Even at its 2018 peak of $40 billion, services covered only 10% of that year’s $417 billion goods deficit.

To fully offset the goods deficit through services, America would need to grow its services surplus from $33 billion to $295 billion — a ninefold increase. That would require roughly 2.5 million Chinese students paying full tuition (versus 277,000 today), or a twentyfold increase in IP royalties, or some combination equally far from reality. The orders of magnitude don’t work.

What services do reveal is the direction of American comparative advantage. The United States runs services surpluses not just with China but with the world — $312 billion globally in 2024. America’s competitive position in education, finance, intellectual property, and business services is enormous and growing. The problem is that these sectors, while highly productive per worker, simply don’t produce the volume of trade that manufactured goods do. A $50,000 tuition payment is a significant transaction. It takes six million such transactions to equal the goods deficit with one country.